E9-2836. Application of Section 367 to a Section 351 Exchange Resulting From a Transaction Described in Section 304(a)(1); Treatment of Gain Recognized Under Section 301(c)(3) for Purposes of Section 1248

AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Notice of proposed rulemaking by cross-reference to temporary regulations.

SUMMARY:

In the Rules and Regulations section of this issue of the Federal Register, the IRS and Treasury Department are issuing temporary regulations under sections 304 and 1248 of the Internal Revenue Code (Code). The temporary regulations provide rules under section 367(a) and (b) that apply to certain transfers of stock by a United States person to a foreign corporation described in section 304(a)(1). The temporary regulations under section 1248(a) provide that, for purposes of section 1248(a), gain recognized by a shareholder under section 301(c)(3) in connection with the receipt of a distribution of property from a foreign corporation with respect to its stock shall be treated as gain from the sale or exchange of the stock of such foreign corporation. The temporary regulations affect certain shareholders that transfer stock in a corporation to a foreign corporation in a transaction to which section 304(a)(1) applies, or that receive a distribution from a foreign corporation described in section 301(c)(3). The text of the temporary regulations also serves as the text of these proposed regulations. The preamble to the temporary regulations explains the temporary regulations and these proposed regulations.

DATES:

Written or electronic comments and requests for a public hearing must be received by May 12, 2009.

ADDRESSES:

Send submissions to: CC:PA:LPD:PR (REG-147636-08), room 5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-147636-08), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, DC, or sent electronically via the Federal eRulemaking Portal at http://www.regulations.gov (IRS REG-147636-08).

FOR FURTHER INFORMATION CONTACT:

Concerning the proposed regulations, Sean W. Mullaney, [phone]; concerning submissions of comments or requests for a public hearing, [e-mail]; at [phone] (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

Temporary regulations in the Rules and Regulations section of this issue of the Federal Register amend the Income Tax Regulations (26 CFR part 1) relating to sections 304 and 1248 of the Code. The text of those regulations also serves as the text of these proposed regulations. The preamble to the temporary regulations explains the temporary regulations and these proposed regulations.

Special Analyses

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. These regulations are necessary to ensure that the appropriate amount of income (dividend income, capital gain or both) is recognized currently in the transactions described in the explanation of provisions section in this preamble. Accordingly, good cause is found for dispensing with notice and public comment pursuant to 5 U.S.C. 553(b) and (c) and with a delayed effective date pursuant to 5 U.S.C. 553(d). For applicability of the Regulatory Flexibility Act, see the cross-referenced notice of proposed rulemaking published elsewhere in this Federal Register. Pursuant to section 7805(f) of the Code, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Comments and Requests for a Public Hearing

Comments are also requested regarding whether IRS and Treasury Department should exercise the regulatory authority under section 304(b)(6) to permit an increase to the basis of the transferred stock in a section 304(a)(1) transaction to the extent the distribution in redemption of the shares deemed issued by the acquiring corporation is treated as a dividend from the earnings and profits of the issuing corporation.

Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The IRS and Treasury Department specifically request comments on the clarity of the proposed rules and how they can be made easier to understand. All comments will be available for public inspection and copying. A public hearing will be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the Federal Register.

Drafting Information

The principal author of these proposed regulations is Sean W. Mullaney of the Office of Associate Chief Counsel (International). However, other personnel from the IRS and the Treasury Department participated in their development.

List of Subjects in 26 CFR Part 1

• Income taxes
• Reporting and recordkeeping requirements

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for part 1 is amended by adding an entry to read as follows:

Authority: 26 U.S.C. 7805 * * *

Section 1.367(a)-9 also issued under 26 U.S.C. 367(a) and (b). * * *

Par. 2. Section 1.367(a)-9 is added to read as follows:

§ 1.367(a)-9

Treatment of deemed section 351 exchanges pursuant to section 304(a)(1).

[The text of proposed § 1.367(a)-9 is the same as the text of § 1.367(a)-9T published elsewhere in this issue of the Federal Register].

Par. 3. Section 1.367(b)-4 is amended by revising paragraphs (e), (f) and (g) to read as follows:

§ 1.367(b)-4

Acquisition of foreign corporate stock or assets by a foreign corporation in certain nonrecognition transactions.

* * * * *

(e) [The text of proposed § 1.367(b)-4(e) is the same as the text of § 1.367(b)-4T(e) published elsewhere in this issue of the Federal Register].

(f) [The text of proposed § 1.367(b)-4(f) is the same as the text of § 1.367(b)-4T(f) published elsewhere in this issue of the Federal Register].

(g) [The text of proposed § 1.367(b)-4(g) is the same as the text of § 1.367(b)-4T(g) published elsewhere in this issue of the Federal Register].

Par. 4. Section 1.1248-1 is amended by revising paragraphs (b) and (g) to read as follows:

§ 1.1248-1

Treatment of gain from certain sales or exchanges of stock in certain foreign corporations.

* * * * *

(b) [The text of proposed § 1.1248-1(b) is the same as the text of § 1.1248-1T(b) published elsewhere in this issue of the Federal Register].

* * * * *

(g) [The text of proposed § 1.1248-1(g) is the same as the text of § 1.1248-1T(g) published elsewhere in this issue of the Federal Register].

Linda M. Kroening,

Acting Deputy Commissioner for Services and Enforcement.